Is India's Stand at WTO Justified

Posted in Finance Articles, Total Reads: 2148
, Published on 12 September 2014

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India recently completely derailed the trade facilitation agreement (TFA) of the World Trade Organization (WTO). This is in complete contrast with India’s stand to the TFA at the Bali meet. Now let’s understand what exactly this agreement is and what can be the reasons of India’s U-turn to the same.

The trade facilitation agreement aims to fast track movement of goods across countries by cutting down on bureaucratic obligations. This is specially the problem in developing nations such as India where the movement of goods flows though many chains of middlemen and babus before being finally ready for trade. Now this may seem plausible enough for India to accept, but India particularly has problem with one particular clause in the agreement. That clause limits the subsidies provided to farmers to not more than 10% of the production value. Now this is a big problem for country like India which recently adopted the Food Security Bill as a law. The government usually provides a minimum support price (MSP) to farmers for various crops such as wheat, barley etc. The imposition on capping would mean the government would only be able to provide a certain fixed amount of subsidies to farmers which would be suicidal in the long term. An analysis of the growing number of suicides among farmers would reveal that most of the famers are not able to pay back their loans and hence they commit suicides. These loans also are not regulated in the sense that most of these loans are taken from landlords and other such persons who charge an extremely high rate of interest to the poor and uneducated farmer.

Image Courtesy: freedigitalphotos.net, Stuart Miles

Further India despite being developed in certain sectors is still lagging behind on the agricultural front. We still are dependent on Monsoon rains for the production of our crops. One season of bad monsoons means farmers are able to produce less and get less income. In this scenario if we can provide only a limited amount of subsidy to the farmers then they will have nowhere else to go and then it will become much more difficult for them to sustain their lives. Subsidies provided by the government also helps in case of inflation and other such economic conditions as these farmers get at least a fixed price in any situation. Add to that the corruption that prevails in the entire system. The subsidy that the government provides is eaten up by the middlemen and only a small fraction of the subsidy actually reach the farmer. Another snag in this clause is that the 10% capping is based on 1968-88 prices when the prices of food grains was much lower. In short this clause means less and less subsidy for the farmers which could drastically impact India’s own domestic production.

But there is also another side to the agreement. India under the UPA rule actually agreed to sign the TFA under the condition that a solution would be developed for the developing nations so that their internal food security would not be comprised. WTO agreed to India’s stand and the same draft was circulated to all the 160 members. The solution was to be developed till 2017 but if the solution comprised on the trade flow of the goods the same would be scrapped. Congress gave the same information to the Parliament and that time then opposition party was satisfied with India’s stand. Taking all this into account we can say that this can be a mere political gimmick so as to capitalize on the upcoming assembly elections and to show the ruling party as pro-farmers party rather than pro-industrialists party. Some would also question the timing of this U-turn as there could be no logical reason for this as the same nation who accepted the proposal at Bali’s meet is refusing at a stage when the trade facilitation agreement was coming close to final approval. Also there is not just subsidies to protect the needs of farmers, there are other methods as well which other developing nations adopt. Our neighboring nation, Pakistan for example provide direct cash to the famers to avoid fluctuations between minimum support price and the market. The whole infrastructure needed to support the food security is so massive comprising of huge distribution system and many other chains. WTO argue that the deal could add $ 1 trillion to world’s GDP and create 21 million jobs. If this is true then India will lose a lot by taking this so called ‘calculated risk’.

The question whether this move is justified or not is a matter that can be debated upon. No doubt by opposing the move India is indeed safeguarding the needs of the poor as well as farmers, but India needs to discover other ways of doing the same otherwise risk being portrayed as spoiler by other nations especially developed nations. Another point to consider is that 10% capping does not apply to developed nations such as US which have been providing large amount of subsidies to its farmers and that represents another case of monopoly of developed nations in the working of the WTO. India by taking this move is now in isolation as its traditional allies such as Indonesia have backed the deal. India needs to introspect this move as by refusing to the deal at the end moment it is now at risk of not being able to reap the benefits of other important WTO deals. India needs to take a pro-farmer stand but the WTO way. The stepping stone to this would be to develop quality infrastructure and world class technology that can be used in agriculture. Then India won’t be dependent on its crumbling distribution system for providing subsidies and farmers won’t be dependent on the uncertain monsoons for production of crops.

This article has been authored by Paritosh Moghe from Goa Institute of Management